By OptiVal Editorial Desk
There is a payroll tax in Ontario that catches small business owners off guard. It is not CPP, it is not EI, and it does not come off your employees’ paycheques. The Ontario employer health tax is paid entirely by the employer, and if your Ontario payroll tops $1 million, you probably owe it. Even if it does not, you may still have a return to file.
Most owners first hear about it when a letter from the Ministry of Finance lands on their desk. This guide covers what the tax is, who is exempt, the 2026 rates, and the filing deadlines that matter to you.
What the Ontario employer health tax actually is
The employer health tax (EHT) is an Ontario payroll tax paid by employers to help fund the provincial health system. Unlike CPP and EI, none of it is deducted from employees. It is entirely the employer’s cost, calculated on total Ontario remuneration: salaries, wages, bonuses, commissions, vacation pay, taxable benefits and allowances, directors’ fees, and amounts paid for casual labour.
What counts is where the work connects to Ontario. Remuneration counts toward your Ontario payroll when employees report for work at your permanent establishment in Ontario, or when they do not report to any permanent establishment but are paid from or through your Ontario establishment. (The CRA’s 2024 remote-work policy on the province of employment is worth revisiting if you run a distributed team; our multi-province payroll guide walks through it.)
The $1 million exemption, and who does not get it
Eligible private-sector employers pay no EHT on the first $1 million of Ontario payroll. That exemption was raised from $490,000 in 2020 and is currently fixed at $1 million through 2028, with an inflation adjustment scheduled for January 1, 2029.
Three situations kill or shrink the exemption:
- Combined payroll over $5 million. If your annual Ontario payroll exceeds $5 million, you get no exemption at all. Between $1 million and $5 million, the exemption still applies and graduated rates cover the rest. Over $5 million, the full payroll is taxed at a flat 1.95 percent.
- Associated employers share one exemption. Related corporations cannot each claim $1 million. The group shares a single $1 million exemption through a written allocation agreement, which must be filed by March 15. A missing or incomplete allocation can cost the whole group its exemption.
- Part-year employers prorate. If you opened partway through the year, the exemption is prorated by days. As an illustration only: a business open from September 1 (122 days) gets roughly $334,247 of exemption for that year ($1,000,000 × 122 ÷ 365).
Public-sector employers, including governments, universities, colleges, school boards and hospitals, are not eligible for the exemption, and registered charities follow separate campus-based rules.
The 2026 EHT rate table
Here is the part most guides gloss over: your rate is determined by your total Ontario remuneration before subtracting the exemption. You then apply that rate to the payroll remaining after the exemption.
| Total Ontario remuneration | EHT rate |
|---|---|
| Up to $200,000 | 0.98% |
| $200,000.01 to $230,000 | 1.101% |
| $230,000.01 to $260,000 | 1.223% |
| $260,000.01 to $290,000 | 1.344% |
| $290,000.01 to $320,000 | 1.465% |
| $320,000.01 to $350,000 | 1.586% |
| $350,000.01 to $380,000 | 1.708% |
| $380,000.01 to $400,000 | 1.829% |
| Over $400,000 | 1.95% |
A worked example, illustration only: an Ontario employer with $1,300,000 in total Ontario remuneration is over the $400,000 threshold, so the rate is 1.95 percent. Subtract the $1 million exemption ($1,300,000 − $1,000,000 = $300,000), then $300,000 × 1.95% = $5,850 in EHT for the year.
Filing and paying: the March 15 deadline
The annual EHT return is due March 15 of the following calendar year. That means your 2026 return and payment are due Monday, March 15, 2027. You can file through the Ministry of Finance’s ONT-TAXS online system.
Instalment rules changed in 2021 and the old $600,000 figure still floats around in outdated guides. The current rule: employers with Ontario payroll over $1.2 million must pay monthly instalments, due the 15th of the following month. If your payroll is under $1.2 million, there are no instalments. You simply file the annual return and pay by March 15.
A few filing details worth knowing:
- If the Ministry mails you an annual return, you must complete and send it back even if no tax is payable. Once a non-associated employer files a nil return, the Ministry stops sending returns automatically.
- If you pay your entire Ontario payroll in a single month and it exceeds your available exemption, you must file a special return within 15 days after that month.
- If you sell, close, or lose your Ontario establishment, a final return is due within 40 days of the closure date. Starting with the 2026 tax year, the rule after an amalgamation changed: the final return is now due within 6 months of the amalgamation date or by March 15 of the following year, whichever comes first.
- Starting December 1, 2026, financial institutions no longer accept paper remittance vouchers for in-person bill payments. If that is how you have been paying, switch to ONT-TAXS, online banking, or EFT before the deadline.
- Keep your records. The EHT Act requires books and accounts that confirm compliance; Ontario’s record retention guidance applies.
Four mistakes that trip up small employers
1. Assuming “under $1 million” means “nothing to do.” If the Ministry has you on its mailing list for returns, a nil return is still required until you file one and drop off the list. Ignoring the envelope is how penalties start.
2. Forgetting associated corporations. Two related companies each paying $800,000 in Ontario payroll do not each get a $1 million exemption. They share one. Run the allocation before year end.
3. Using the wrong instalment threshold. Blog posts from before 2021 still say $600,000 triggers monthly instalments. The threshold is $1.2 million now. Paying instalments you do not owe ties up cash; missing ones you do owe draws interest.
4. Treating it like CPP. CPP and EI have annual maximums per employee and stop once reached (see our CPP and EI deductions guide). EHT has no per-employee maximum. It is a straight percentage on total payroll above the exemption, so it grows with every hire and every raise.
A 20-minute year-end routine
Before March 15, 2027, take twenty minutes to confirm three numbers: total Ontario remuneration for 2026, the exemption you are entitled to (full, shared, or prorated), and the rate from the table above. Then check whether you are on the Ministry’s return mailing list and whether any associated company needs an allocation agreement. Getting this right in one sitting is far cheaper than a late return. Late payroll filings carry some of the steepest penalties in the system, as we covered in our payroll penalties guide.
Running payroll and not sure where you stand on the employer health tax? We handle payroll for Canadian small businesses, from $29 per employee per month plus a $149 setup, and we keep an eye on exactly these provincial filings. Book a free consultation and we will sort it out with you.
